Exchange-traded funds, which have soared in popularity over the past decade, are attracting extra attention because of a brand-new plus — many ETFs now can be bought and sold commission-free. That bonus feature makes an array of ETF advantages and strategies even more attractive.

Five powerful ways that you can benefit by investing in ETFs…

1: Build a diversified portfolio with lower expenses. ETFs, which typically track an index of stocks, bonds or other securities but trade on an exchange like individual stocks, often have even lower expenses than index mutual funds — in some cases, as low as 0.08% per year. In the past, however, those savings were offset by the commissions that you had to pay whenever you bought or sold shares in ETFs.

Now two major discount brokerage firms are offering many ETFs commission-free.

Strategy: Contribute fixed amounts of money to a few commission-free ETFs at regular intervals — for instance, every month. That’s a great way to build a diversified global investment portfolio without worrying about costly fees or annual expenses.

Where you can invest in commission-free ETFs…

Fidelity Investments offers 25 commission-free ETFs from iShares, the largest family of ETFs, which is managed by the asset-management firm BlackRock. The ETFs track indexes of stocks of various-sized US companies, foreign stocks or bonds, value or growth stocks, corporate bonds, municipal bonds and Treasury Inflation-Protected Securities (TIPS). 800-343-3548, www.Fidelity.com (search for “iShares ETFs”).

Charles Schwab offers eight of its own ETFs without commissions. You can pick from indexes that track the broad US stock market, large- or small-cap stocks, foreign stocks and emerging-market stocks. 800-435-4000, www.Schwab.com.

2: Save on taxes by swapping investments. ETFs come in handy when you want to “harvest” your tax losses. That means you sell money-losing investments, such as a particular stock or mutual fund, and use the losses to offset taxable gains on other investments. However, the IRS prevents investors from taking a loss on a security if a “substantially identical” one is bought within 30 days of the original sale. This so-called “wash sale rule” prevents you from taking a loss by swapping, say, the Vanguard 500 Stock Index Fund (VFINX) with the Fidelity Spartan 500 Index Fund (FUSEX).

Better: There are many ETFs that you can use to harvest your tax losses without running afoul of the IRS. You can, for example, replace an S&P 500 fund with the Vanguard Large Cap ETF (VV). It tracks the MSCI US Prime Market 750, an index that performs similarly to the S&P 500 and, like an S&P 500 index fund, has very little turnover in the stocks that it holds. It is much more difficult to find a mutual fund that serves this purpose so well.

3: Guard against big losses. Getting in or out of a mutual fund in a fast-moving market can be tricky because the fund’s asset value is repriced once at the end of the day’s trading. ETFs are constantly repriced during the trading day, just like a stock, so if the market is plunging and you want to get out before the end of the day or it is soaring and you want to get in before the end of the day, an ETF allows you to do so before the price changes drastically.

Also, with an ETF, you can use a “stop-loss order” to automatically sell your shares if they fall to a price that you specify in advance — something you can’t do with a mutual fund. If your ETF gains in value, you can move up the trigger point for your stop-loss order so that you never risk losing more than 10% to 15% from the peak level.

In addition, many mutual funds now impose hefty penalties if you sell shares within 90 days after you buy them, but ETFs don’t.

4: Gain direct exposure to a specific industry sector. It is difficult to zero in on a narrow segment of an industry through sector mutual funds, which tend to focus on fairly broad segments, such as energy or health care, or charge excessive fees for pinpointing an industry niche. ETFs let you shape your portfolio with great precision.

Example: You realize that for diversification, you should own more utility stocks. Instead of buying an energy-sector mutual fund, which may include other types of related companies in addition to utilities, you round out your portfolio by buying shares of Utilities Select Sector SPDR Fund (XLU). Its portfolio includes only utility stocks, and the ETF charges an expense ratio of 0.21%. In contrast, the Fidelity Select Utilities Portfolio (FSUTX) charges more than four times as much in annual fees.

5: Reduce volatility in stocks or currencies. One of the most useful ways that professional investors protect themselves is by “hedging.” They buy an investment that will gain in value if the rest of a portfolio or certain parts of it lose value… or if their investments are hurt by changes in the relative value of certain currencies. With ETFs, you can hedge in a variety of ways.

Example 1: Say you work at Pfizer and have a large chunk of your net worth tied up in the company stock. You don’t want to take a chance that a drop in Pfizer will devastate your portfolio, so to provide your portfolio with some protection, you can arrange with your brokerage to “short” (bet against) an ETF that tracks the overall drug industry, such as the iShares Dow Jones US Pharmaceuticals Index Fund (IHE). That way, if Pfizer stock loses value as part of a pullback by drug-industry stocks, your losses in Pfizer are cushioned by your gains from betting against the ETF.

Example 2: Say you are planning a trip to Europe in six months but are concerned that the dollar will weaken in relation to the euro by the time you get there, meaning that your US money would buy less and your vacation would become much more costly.

Helpful: Put the amount of money that you expect to spend on your trip in CurrencyShares Euro Trust (FXE), an ETF that invests in an interest-yielding euro-denominated bank account. You can cash out at any time by selling your shares, and you will be paid in US dollars. If the dollar does weaken relative to the euro, you have offset the additional money your trip will cost because the price of your FXE shares has risen.

Information: www.CurrencyShares.com.

What Not to Do

I avoid new and gimmicky ETFs by using only proven ones that have more than $100 million in assets and trade at least 50,000 shares per day. I also stay away from leveraged ETFs, which aim to double or triple the performance of the indexes they track, meaning that they will lose two or three times as much as the index in down markets.